Construing limitation and exclusion of liability clauses in construction contracts

A property development consortium comprising Persimmon Homes, Taylor Wimpey and BDW brought a claim for damages against Ove Arup (a civil engineering firm) for breach of contract, negligence and breach of statutory duty. The claim related to losses suffered by the consortium in relation to the purchase price paid for a development site and the late discovery of asbestos contamination on site which caused additional costs to be incurred.

The parties had entered into a contract with limitation and exclusion of liability clauses. Following a trial of the preliminary issues in late 2015, the High Court found that these clauses effectively barred all of the consortium’s claims for losses caused in relation to the asbestos on site and limited any claims in relation to other contamination to £5 million. In particular, the Court held that the exemption clauses represented an agreed allocation of risk between the parties, that there was no ambiguity as to the meaning of the clauses and that the Court should give effect to their meaning.

The consortium subsequently appealed to the Court of Appeal on various grounds including on the interpretation of the limitation and exclusion of liability clauses and the High Court judge’s failure to apply the contra proferentem rule (i.e. that where there is doubt as to the meaning of a contract, the words will be construed against the person relying on them). The Court of Appeal accepted Arup’s narrow interpretation of the clauses. Further, it held that there was insufficient ambiguity in the wording of the clauses to be construed against Arup.

Interestingly, this case has once again highlighted that the contra proferentum rule now has a very limited role in cases where commercial contracts have been negotiated between parties with equal bargaining power. Historically, this rule formulated by the courts was applied and adhered to more rigidly on the basis that a person relying on the wording of a proposed agreement is assumed to be looking after his own interests so that if there is any ambiguity then that should be construed in favour of the other party. It has been used by the courts to, for example, nullify or reduce the effect of an exclusion clause where such clause is ambiguously drafted and upholding it would result in unfairness. However, the rule is no longer applicable in negotiated business-to-business contracts which are the result of joint effort. Additionally, where the businesses contract on one party’s standard terms, the clause is subject to the reasonableness test under sections 11 and 13 of the Unfair Contract Terms Act 1977. Arguably, therefore, this rule is becoming increasingly redundant.